SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-7411
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 13-2530665
(State of incorporation) (I.R.S. Employer Identification Number)
122 Fifth Avenue, New York, N.Y. 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-387-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The aggregate market value of the voting stock held by nonaffiliates
of the registrant as of March 15, 1996 was approximately $6,118,136.
The number of shares outstanding of each of the registrant's classes
of common shares, as of March 15, 1996, was 7,078,625.
DOCUMENTS INCORPORATED BY REFERENCE - None
Exhibit Index on Page 23.
<PAGE>
TABLE OF CONTENTS
Part I
Page
Item 1- Business................................................ 1
Item 2- Properties.............................................. 9
Item 3- Legal Proceedings....................................... 9
Item 4- Submission of Matters to a Vote of Security Holders..... 9
Part II
Item 5- Market for the Registrant's Common Equity and Related
Stockholder Matters..................................... 9
Item 6- Selected Financial Data................................. 10
Item 7- Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 11
Item 8- Financial Statements and Supplementary Data............. 13
Item 9- Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 13
Part III
Item 10- Directors and Executive Officers of the Registrant...... 14
Item 11- Executive Compensation.................................. 17
Item 12- Security Ownership of Certain Beneficial Owners and
Management.............................................. 19
Item 13- Certain Relationships and Related Transactions.......... 20
Part IV
Item 14- Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................ 21
Signatures....................................................... 22
<PAGE>
PART I
Item 1. Business
General
Allcity Insurance Company (the "Registrant", "Allcity" or the
"Company") is a property and casualty insurer. Empire Insurance Company
("Empire"), a property and casualty insurer, owns approximately 84.6% of
the outstanding common shares of the Company and 100% of the outstanding
common shares of Centurion Insurance Company ("Centurion"). Empire's
common shares are 100% owned and controlled, through subsidiaries, by
Leucadia National Corporation ("Leucadia"). Leucadia is a diversified
financial services holding company whose shares are traded on both the
New York and Pacific Stock Exchanges and is principally engaged in
property and casualty insurance, life and health insurance, banking and
lending and manufacturing. The Company, Empire and Centurion are
sometimes hereinafter collectively referred to as the "Group".
The Company operates in the State of New York, conducting property
and casualty insurance underwriting activities. The Company's property
and casualty business is produced through general agents, one of whom is
an Empire subsidiary, local agents and insurance brokers.
According to A.M. Best & Co. ("Best"), the Group ranked 109th in
total net premium writings among property and casualty insurance
companies and groups in 1994. Approximately 63% of the Company's net
premiums written in 1995 were for automobile insurance coverages, while
37% of such premiums were for commercial (other than automobile) and
personal and miscellaneous coverages. The Company's general agents
produced approximately 21% of the Company's premium revenues for the year
ended December 31, 1995.
Pooling Arrangement
All insurance business written by the Company is subject to a
pooling agreement with Empire under which the companies effectively
operate as one company. The Company operates under the same general
management as Empire and has full use of Empire's personnel and
facilities. As of December 31, 1995, Empire and its subsidiaries, had
851 full and part-time employees. Currently, and for all periods
presented, all premiums, losses, loss adjustment expenses and other
underwriting expenses are shared in the proportion 70% to Empire and 30%
to the Company. The pooling arrangement and subsequent amendments were
approved by the New York State Insurance Department.
Reinsurance
For the years 1995, 1994 and 1993, the Company's retention on
property and casualty lines of insurance was $225,000 and for workers'
compensation business was $500,000. Additionally, the Company carries
reinsurance to protect itself against certain catastrophic losses. Its
retention of lower level losses under such treaties was $3,000,000 for
each of 1995, 1994 and 1993. The majority of the Company's reinsurance
has been placed with certain of the largest domestic reinsurance
companies, including (with their Best ratings) General Reinsurance
Corporation (A++), Munich American Reinsurance Company (A+), Prudential
Reinsurance Company (A) and, beginning in 1996, Zurich Reinsurance
Centre, Inc. (A).
<PAGE>
Tax Sharing Agreement
The Company has been included in the consolidated federal income tax
returns of Leucadia since 1993. Under the terms of the tax sharing
agreement, members compute their tax provision on a separate return basis
and are either charged their share of federal income tax resulting from
their taxable income or are reimbursed for tax benefits resulting from
losses.
Financial Information Relating to Business Segments
The Company operates in the following business segments:
(1) Automobile lines - includes private passenger and commercial
automobile bodily injury, property damage, comprehensive and
collision insurance coverages.
(2) Commercial lines - includes commercial multiple peril, workers'
compensation, other liability, glass, burglary, disability and
inland marine insurance coverages.
(3) Miscellaneous and personal lines - includes fire and allied
lines and homeowners insurance coverages.
<TABLE>
The following table presents business segment data for the three
years ended December 31, 1995 (dollars in thousands):
<CAPTION>
Premiums Premiums Losses Loss
Written Earned Incurred Ratio
1995
<S> <C> <C> <C> <C>
Automobile lines $62,485 $61,261 $55,652 90.8%
Commercial lines 28,821 29,535 20,799 70.4%
Miscellaneous and personal
lines 4,029 3,455 1,224 35.4%
Total $95,335 $94,251 $77,675 82.4%
1994
Automobile lines $60,216 $55,826 $43,825 78.5%
Commercial lines 30,334 30,387 15,435 50.8%
Miscellaneous and personal
lines 2,986 2,831 1,454 51.4%
Total $93,536 $89,044 $60,714 68.2%
1993
Automobile lines $47,624 $46,911 $35,707 76.1%
Commercial lines 28,597 27,196 15,499 57.0%
Miscellaneous and personal
lines 2,738 2,813 1,303 46.3%
Total $78,959 $76,920 $52,509 68.3%
</TABLE>
For further information concerning Business Segments, see Notes 8
and 12 of the Notes to Consolidated Financial Statements, included
elsewhere herein.
<PAGE>
Combined Ratios
The following are the "combined ratios" prepared in accordance with
generally accepted accounting principles ("GAAP") and statutory
accounting principles ("SAP") of the Company for the three years ended
December 31, 1995. The combined ratio is the sum of the loss ratio and
the expense ratio (net of service fee income). The SAP combined ratio is
the ratio of losses and loss adjustment expenses incurred to net premiums
earned plus the ratio of all other underwriting expenses to net premiums
written. The GAAP combined ratio is the ratio of total losses and
expenses to net premiums earned. A combined ratio below 100% indicates
an underwriting profit and a combined ratio above 100% indicates an
underwriting loss. The combined ratio does not include the effect of
investment income.
<TABLE>
Year Ended December 31
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
GAAP Combined Ratio 115.4% 102.5% 103.5%
SAP Combined Ratio 107.5% 101.3% 101.6%
Industry SAP Combined Ratio(a) NA 108.5% 106.9%
</TABLE>
(a) Source: Best's Aggregates & Averages, Property/Casualty, 1995
Edition. A comparison of industry combined ratios may not
be meaningful as a result of, among other things,
differences in geographical concentration and in the mix
of property and casualty insurance products.
The Company's 1995 GAAP and SAP combined ratios were higher than
those of prior years due to significant loss reserve strengthening in
automobile and workers' compensation lines and additional payments made
on automobile no-fault claims which had been closed prior to 1995. For
1994 and 1993, differences in the expense ratios were the principal
reasons the GAAP combined ratios were higher than the SAP combined
ratios. The SAP expense ratios were lower primarily as a result of net
premiums written being higher than net premiums earned and certain
expenses (mainly policyholder's dividends and premium charge-offs)
included in the GAAP expense ratios were not included in the SAP expense
ratios. For 1995, the difference between SAP and GAAP combined ratios
resulted primarily from a change in the statutory accounting treatment
for retrospectively rated reinsurance agreements and, although to a
lesser extent, the differences in the GAAP and SAP expense ratios
explained above.
Narrative Description of Business
The Company's property and casualty insurance operations are
conducted in conjunction with other members of the Group operating
primarily in the New York metropolitan area. The Group provides personal
insurance coverage to automobile owners and homeowners and commercial
insurance primarily for categories of residential real estate,
restaurants, retail establishments, taxicabs (both medallion and radio-
controlled) and several types of service contractors. During 1995, the
Group was rated "A-" (excellent) by Best, the widely consulted insurance
industry research analyst. The Group was also rated "A" (good) by
Standard & Poor's Insurance Rating Services, based on the Group's claims-
paying ability. Management believes that the Company has adequate
capital to meet its currently anticipated level of operations.
<PAGE>
Substantially all of the Group's policies are written for a one year
period. The Group is licensed in New York to write all lines of
insurance that may be written by property and casualty insurers except
residual value, credit, unemployment, animal, marine protection and
indemnity insurance and ocean marine insurance. Empire is also licensed
to write insurance in Connecticut, Massachusetts, Missouri, New Hampshire
and New Jersey. Approximately 3.3% of the Group's written premiums are
produced from sources outside New York State.
The Group has also acquired blocks of private passenger automobile
and commercial automobile assigned risk business from other insurance
companies. These contractual arrangements provide for negotiated fees to
the Group within parameters established by the New York Insurance
Department.
In addition, the Group receives a fee as a servicing carrier,
providing administrative services, including claims processing,
underwriting and collection activities, for the New York Public
Automobile Pool, Massachusetts Limousine/Taxi Program and New Hampshire
Commercial Automobile Insurance Plan. These arrangements do not involve
the assumption of any material underwriting risk by the Group.
During 1995, the Group strengthened reserves in certain lines of
business, as more fully discussed in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this
report. As a result of the Group's poor operating results in 1995,
management is currently evaluating its operations, including policy
pricing, underwriting, claims handling procedures and market segment
profitability. The Group intends to concentrate its efforts on the
profitability of its products and, as a result, premium volume may
decline.
Investments
Investment activities represent a significant part of the Company's
total income. Investments are managed by the Company's investment
committee, which consults with outside investment advisors with respect
to a substantial portion of the portfolio.
The Company has a diversified investment portfolio substantially
consisting of securities rated "investment grade" by established bond
rating agencies or issued or guaranteed by the U.S. Government or its
agencies. At December 31, 1995, the average yield of the bond portfolio
was approximately 5.8% and the average maturity of the bond portfolio was
approximately 2.8 years.
Marketing
The Group's marketing strategy emphasizes profitability rather than
volume. The business of the Group is produced through five general
agents, one of which is an Empire subsidiary, and approximately 385 local
agents and insurance brokers, who are compensated for their services by
payment of commissions on the premiums they generate. These agents and
brokers also represent competing insurance companies. Subject to
regulatory approval, the Group utilizes premium rates developed and
independently filed for all coverages with the exception of its workers'
compensation, for which rates are filed by the New York Compensation
Insurance Rating Board, and assigned risk automobile business, for which
rates are filed by the New York Automobile Insurance Plan.
<PAGE>
Government Regulation
The Group, as well as other insurance companies, is subject to
detailed regulation and supervision in the states in which they transact
business. There can be no assurance that such regulatory requirements
will not become more stringent in the future and have an adverse effect
on the Group's operations. Insurance companies are required to file
detailed annual reports with the supervisory agencies in each of the
states in which they do business and are subject to examination by such
agencies at any time.
The National Association of Insurance Commissioners ("NAIC") has
adopted model laws incorporating the concept of a "risk based capital"
("RBC") requirement for insurance companies. Generally, the RBC formula
is designed to measure the adequacy of an insurer's statutory capital
in relation to the risks inherent in its business. The RBC formula is
used by the states as an early warning tool to identify weakly
capitalized companies for the purpose of initiating regulatory action.
As of December 31, 1995, the Company's RBC ratio substantially exceeded
minimum requirements.
Competition
The Company believes that property and casualty insurers generally
compete on the basis of price, customer service, consumer recognition and
financial stability. The industry has historically been cyclical in
nature, with periods of less intense price competition generating
significant profits, followed by periods of increased price competition
resulting in reduced profitability or loss. The current cycle of intense
price competition has continued for a longer period than in the past,
suggesting that the significant infusion of capital into the industry in
recent years, coupled with larger investment returns, has been, and may
continue to be, a depressing influence on policy rates. The
profitability of the property and casualty insurance industry is affected
by many factors, including rate competition, severity and frequency of
claims (including catastrophe losses), interest rates, state regulation,
court decisions and judicial climate, all of which are outside the
Company's control.
Losses and Loss Adjustment Expenses
The estimated liabilities for unpaid losses and loss adjustment
expenses ("LAE") are determined using case-basis evaluations and
statistical projections and represent estimates of the ultimate net cost
of all unpaid losses and LAE incurred through December 31 of each year.
These estimates are subject to the effect of trends in future claim
severity and frequency experience. Adjustments to such estimates are
made from time to time to reflect changes in loss experience and are
reflected in current earnings. Liabilities for losses are not discounted
except for certain long-term disability claims under workers'
compensation insurance where the discount is not material.
<TABLE>
In the following table, the liability for losses and LAE are
reconciled for each of the three years ended December 31, 1995. Included
therein are current year data and prior year development.
<PAGE>
RECONCILIATION OF LIABILITY FOR LOSSES AND LAE
<CAPTION>
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Liability for losses and LAE, net,
at beginning of year $121,923 $106,115 $ 96,740
Provision for losses and LAE for
claims occurring in the current year 80,061 73,790 61,308
Increase (decrease) in estimated losses
and LAE for claims occurring in prior
years 10,266 (2,934) (196)
90,327 70,856 61,112
Loss and LAE payments for claims
occurring during:
The current year 23,743 20,000 17,834
Prior years 45,789 35,048 33,903
69,532 55,048 51,737
Liability for losses and LAE, net 142,718 121,923 106,115
Reinsurance recoverable 257,161 219,676 184,718
Liability for losses and LAE
at end of year as reported in
financial statements $399,879 $341,599 $290,833
</TABLE>
The Company has relied upon standard actuarial ultimate loss
projection techniques to obtain estimates of liabilities for losses and
LAE. These projections, based upon historical patterns and performed
quarterly, include the extrapolation of both losses paid and incurred,
by line of business and accident quarter, and implicitly consider the
impact of inflation and claims settlement patterns upon ultimate claim
costs. In addition, methods based upon average loss costs, reported claim
counts and pure premiums are reviewed in order to obtain a consistent
range of estimates for setting the Company's reserve levels. For further
input, the Company's Loss Reserve Committee periodically reviews changes
in operations in pertinent areas such as underwriting standards, product
mix, claims management and legal climate. Such input may lead to
modifications of the statistical projection methods.
The Company's liability for losses and LAE as of December 31, 1995
was $142,261,000 determined in accordance with SAP and $399,879,000
determined in accordance with GAAP. The difference principally relates
to liabilities assumed by reinsurers, which are not deducted from GAAP
liabilities.
The following table presents the development of balance sheet
liabilities for 1985 through 1995. The liability line of the table
indicates the estimated net liability for unpaid losses and LAE recorded
at the balance sheet date for each of the indicated years. This
<PAGE>
liability represents the estimated amount of losses and LAE for claims
that were unpaid at each annual balance sheet date, including provision
for losses estimated to have been incurred but not reported to the
Company. The middle portion of the table shows the re-estimated amount
of the previously reported liability based on experience as of the end
of each succeeding year. As more information becomes available and
claims are settled, the estimated liabilities are adjusted upward or
downward with the effect of decreasing or increasing net income at the
time of adjustment.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the initial
1985 liability estimate has developed a $2,667,000 redundancy over ten
years. The effect on pretax income during the past three years of
changes in estimates of the liabilities for losses and LAE is shown in
the reconciliation table above.
The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each
succeeding year. For example, as of December 31, 1995, the Company had
paid $45,486,000 of the currently estimated $47,047,000 of losses and LAE
that had been incurred, but not paid, through the end of 1985; thus an
estimated $1,561,000 of losses incurred through 1985 remain unpaid as of
the current balance sheet date.
In evaluating this information it should be noted that each amount
includes the effects of all changes in amounts for prior periods. For
example, the amount of the redundancy related to losses settled in 1988,
but incurred in 1985, will be included in the cumulative redundancy
amount for years 1985, 1986, 1987 and 1988. This table does not present
accident or policy year development data. Conditions and trends that
have affected development of the liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate
to extrapolate future redundancies or deficiencies based on this table.
<PAGE>
<TABLE>
Analysis of Loss and Loss Adjustment Expenses Development
(Thousands of dollars)
Year ended December 31,
<CAPTION>
1985 1986 1987 1988 1989 1990
Liability for
unpaid Losses
and Loss adjust-
ment expenses 49,714 54,640 62,013 67,154 70,567 75,420
One Year Later 48,216 54,292 59,515 64,411 68,357 74,844
Two Years Later 48,885 52,591 58,357 62,135 65,277 73,538
Three Years Later 47,057 51,044 56,650 59,859 63,792 73,151
Four Years Later 47,095 50,570 55,367 58,606 63,556 74,190
Five Years Later 46,618 49,713 54,595 59,131 63,584 76,509
Six Years Later 46,208 49,344 54,904 59,304 64,962
Seven Years Later 46,240 49,879 54,924 60,161
Eight Years Later 46,714 49,785 55,682
Nine Years Later 46,619 50,315
Ten Years Later 47,047
Cumulative Redun-
dancy (Deficiency) 2,667 4,325 6,331 6,993 5,605 (1,089)
<CAPTION>
1991 1992 1993 1994 1995
84,178 96,712 106,115 121,923 142,718
83,987 96,516 103,181 132,189
83,341 97,208 112,176
85,197 103,592
88,928
(4,750) (6,880) (6,061) (10,266)
Cumulative amount
of Liability paid
through:
One Year Later 15,540 16,307 18,133 19,242 19,744 23,681
Two Years Later 24,974 26,630 29,287 30,362 32,840 38,067
Three Years Later 31,904 34,295 36,927 39,511 42,271 50,194
Four Years Later 36,982 39,129 42,872 45,698 49,803 58,830
Five Years Later 39,786 42,402 46,734 50,434 54,602 65,025
Six Years Later 41,783 44,721 49,262 53,433 58,185
Seven Years Later 43,177 46,101 51,067 55,598
Eight Years Later 44,051 47,200 52,538
Nine Years Later 44,895 48,150
Ten Years Later 45,486
Net Liability -
End of Year
Reinsurance
Recoverable
Gross Liability -
End of Year
Net Re-estimated
Liability - Latest
Re-estimated
Recoverable - Latest
Gross Re-estimated
Liability - Latest
Gross Cumulative
Deficiency
<CAPTION>
1991 1992 1993 1994 1995
<C> <C> <C> <C>
26,852 33,903 35,048 45,789
44,989 54,615 59,701
59,336 71,653
69,995
106,155 121,923 142,718
184,718 219,676 257,161
290,833 341,599 399,879
112,176 132,189
206,059 237,470
318,235 369,659
(27,402) (28,060)
</TABLE>
<PAGE>
Item 2. Properties
The Group's executive and administrative offices are located on six
floors of a ten-story office building at 122 Fifth Avenue, New York, New
York 10011 and one floor of an adjoining office building at 120 Fifth
Avenue, New York, New York 10011. These facilities total approximately
113,300 square feet, under leases which each expire on September 30,
1998.
The Group also conducts limited operations from branch offices
located in Manhattan, Mineola, Scarsdale and Rochester, New York, Boston,
Massachusetts and Bedford, New Hampshire. The rental charged to the
Company for these facilities is prorated in accordance with the pooling
agreement described in "Pooling Arrangement" under Item 1, herein.
Item 3. Legal Proceedings
The Company is party to legal proceedings that are considered to be
either ordinary, routine litigation or incidental to its business. Based
on discussion with Counsel, the Company does not believe that such
litigation will have a material effect on its financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The information to be included under the caption "Submission of
Matters to a Vote of Security Holders" is included in the Company's Form
10-Q for the quarterly period ended September 30, 1995.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
The Company's common stock trades on The Nasdaq Stock Market under
the symbol "ALCI". The following table sets forth, for the calendar
quarters indicated, the high and low closing trade price per common share
as reported by the Wall Street Journal and National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1st Quarter 1996
(through March 15, 1996) $ 9 3/8 $ 8
1st Quarter 1995 9 3/4 8 3/4
2nd " " 9 1/4 8 1/2
3rd " " 9 1/2 8 1/2
4th " " 9 3/4 8
1st Quarter 1994 11 1/4 9
2nd " " 11 3/8 10
3rd " " 10 3/4 10
4th " " 10 1/2 9
</TABLE>
<PAGE>
(b) Holders
The number of shareholders of record of common shares at December
31, 1995 was 617.
(c) Dividends
The Company has paid no dividends on its common shares since 1975.
Without the approval of the New York State Insurance Department,
dividends are limited to the lowest of 1) 10% of surplus as computed on
a SAP basis, 2) earned surplus determined on a SAP basis and 3) adjusted
net investment income during the 36 month period prior to declaration.
The Company does not presently anticipate paying dividends in the near
future.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993(b) 1992 1991
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues $117,892 $107,286 $94,632 $89,845 $76,943
Income before cumulative
effects of changes in
accounting principles $563 $6,901 $ 7,222 $8,482 $6,984
Cumulative effects of
changes in accounting
principles - - 6,171 - -
Net income(a) $563 $6,901 $13,393 $8,482 $6,984
Per share:
Income before cumulative
effects of changes in
accounting principles $0.08 $0.97 $1.02 $1.20 $0.99
Cumulative effects of
changes in accounting
principles - - 0.88 - -
Net income (a) $0.08 $0.97 $1.90 $1.20 $0.99
<FN>
a) Net income includes net securities (losses) gains, net of applicable
tax, as follows:
</TABLE>
<TABLE>
<CAPTION>
(Losses)Gains Per Share
<C> <C> <C>
1995 $ (133,000) $(0.02)
1994 (437,000) (0.06)
1993 918,000 0.13
1992 1,470,000 0.21
1991 297,000 0.04
<FN>
b) The cumulative effects of changes in accounting principles related
to changes in accounting for income taxes, postretirement benefits and
retrospectively rated reinsurance contracts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31
1995 1994 1993 1992 1991
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Total assets(a) $660,820 $582,508 $513,558 $236,094 $196,518
Invested assets 273,548 237,878 219,608 199,220 162,939
Surplus note:
Face value 7,000 7,000 7,000 7,000 7,000
Interest 6,524 5,911 5,395 4,975 4,513
Common Shareholders'
Equity(b) 75,936 63,264 69,813 53,780 44,598
GAAP Combined Ratio 115.4%(d) 102.5% 103.5% 103.5% 103.7%
SAP Combined Ratio 107.5%(d) 101.3% 101.6% 101.8% 101.1%
Industry SAP Combined
Ratio NA 108.5% 106.9% 115.7% 108.8%
Premium to Surplus
Ratio (c) 1.6 1.7 1.5 1.6 1.6
<FN>
(a) Includes $336,450,000, $297,290,000 and $249,420,000 in 1995, 1994
and 1993, respectively, for reinsurance receivables. Prior to
December 31, 1993, reinsurance receivables were netted against loss
reserves and unearned premiums.
<FN>
(b) Includes unrealized appreciation of $1,240,000 in 1995 and $2,581,000
in 1993 and unrealized depreciation of $10,869,000 in 1994, all net
of tax, on securities classified as available for sale.
<FN>
(c) Premium to Surplus Ratio was calculated by dividing statutory net
premiums written by year-end statutory surplus.
<FN>
(d) For 1995, the difference between SAP and GAAP combined ratios
resulted primarily from a change in the statutory accounting treat-
ment for retrospectively rated reinsurance agreements.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
During each of the three years in the period ended December 31,
1995, the Company operated profitably and net cash was provided from
operations.
At December 31, 1995, the yield of the Company's bond portfolio was
5.8% with an average maturity of 2.8 years. Additionally, at December 31,
1995, approximately 91% of the bond portfolio was invested in issues of
the U.S. Government and its agencies with the remainder invested in
investment grade corporate and industrial issues. The Company presently
anticipates reinvesting proceeds from maturities and investment income
in substantially similar investments with a slightly longer duration.
In February 1996, the Company sold investments available for sale with
an aggregate book value at date of sale of $75,517,896 and realized gains
of $455,053.
The Company believes its immediate cash needs will not require the
sale of bonds, although it may sell certain of these securities from time
to time. During 1995, the Company sold certain long-term securities to
shorten the average duration of its investment portfolio.
Principally as a result of a decline in market interest rates during
1995, the market value of the Company's bond portfolio at December 31,
<PAGE>
1995 was $1,932,000 above amortized cost. While this has resulted in an
increase in shareholders' equity, it had no effect on results of
operations or cash flows.
The Company maintains cash, short-term and readily marketable
securities in an amount sufficient to satisfy its anticipated cash needs.
The Company does not presently anticipate paying dividends in the near
future and believes it has sufficient capital to meet its currently
anticipated level of operations.
Results of Operations
Revenues
Revenues have increased in each of the last three years, principally
due to premium growth. Although faced with price competition in its
traditional markets, the Company has been able to increase premium levels
through the development of certain commercial niche markets, rate
increases and the acquisition of blocks of private passenger and
commercial automobile assigned risk business from insurance companies
required or volunteering to terminate such coverage.
The Company's premium rate increases require the prior approval of
the New York Insurance Department. For voluntary private passenger
automobile business, rate increases of 4.5% and 6.7% were implemented in
September 1995 and October 1993, respectively; there was no rate change
during 1994. For voluntary commercial automobile business, a 3.0% rate
increase was implemented in February 1995; there were no rate changes
during 1994 and 1993. For voluntary statutory automobile business, rate
increases of 6.0%, 7.6% and 6.9% were implemented in February 1995,
February 1994 and February 1993, respectively. For assigned risk private
passenger automobile business, rate increases of 5.8% and 8.6% were
implemented in December 1995 and August 1994, respectively; there was no
rate change during 1993. For assigned risk commercial automobile
business, rate increases of 15.2% and 18.3% were implemented in March
1995 and May 1993, respectively; there was no rate change during 1994.
For liability other than automobile, there were no rate changes during
the last three years. For homeowners, there was a 3% increase in
December 1995, and no increases during 1994 or 1993. In addition, the
Company adopted workers' compensation rate changes promulgated by the New
York State Compensation Insurance Rating Board of -8.4%, +1.4%, -15.4%
and +14.4% that were implemented in October 1995, October 1994, April
1994 and October 1993, respectively.
Investment income has increased in each of 1995 and 1994 primarily
as a result of growth in invested assets resulting from positive cash
flows. During 1995 and 1994, the Company realized losses on the sale of
certain investments in order to shorten the average duration of its
investment portfolio. In 1993, the Company sold certain investments to
generate realized gains.
Service fee income has increased in each of 1995, 1994 and 1993
primarily as a result of the Group's increased acquisition of blocks of
automobile assigned risk business from other insurance companies for a
fee.
Expenses
Losses incurred for 1995 increased primarily as a result of reserve
strengthening, while losses incurred for 1994 and 1993 were greater than
<PAGE>
those of the preceding year largely due to increased assigned risk
automobile premium volume. During 1995, the Company strengthened
reserves in automobile and workers compensation lines by approximately
$10,300,000, net of salvage and subrogation of $471,000. Actuarial
studies conducted during 1995 have identified revised loss development
patterns in automobile lines, which may indicate greater ultimate loss
experience than previously expected. The Company also reopened closed
no-fault claims files during 1995 and made additional payments on prior
years' claims. This, along with changes in claim handling practices,
have increased the difficulty of estimating ultimate losses, and actual
losses may be different than the studies indicated. However, the Company
strengthened reserves to the levels indicated in the actuarial studies.
The Company will continue to analyze loss development patterns on a
quarterly basis and will evaluate the adequacy of it loss reserves. Also,
assessments for certain workers' compensation assigned risk pools and
funds added approximately $1,060,000, $178,000 and $900,000 to incurred
losses for the commercial lines business segment in 1995, 1994 and 1993,
respectively. In addition, in 1995, the Company refined its estimate of
anticipated salvage and subrogation. Anticipated salvage and subrogation
reduced incurred losses by approximately $1,772,000, $28,000 and $300,000
for the years 1995, 1994 and 1993, respectively.
Loss adjustment expenses have risen in each of 1995, 1994 and 1993
as a result of increased claims activity as well as increased operating
expenses, a portion of which is allocated to loss adjustment expense.
The combination of other underwriting expenses incurred and the
amortization of deferred policy acquisition costs reflected increases of
$769,000, $3,360,000 and $634,000 in 1995, 1994 and 1993, respectively.
The increase in 1995 was the result of increased amortization of
acquisition costs stemming from the growth in earned premiums. The
increase in 1994 was principally the result of a higher level of expenses
associated with increased premium volume coupled with an increase in
amortization of acquisition costs stemming from growth in earned
premiums. The increase in 1993 stemmed largely from a decrease in the
level of acquisition costs deferred.
Impact of Inflation
The Company, as well as the property and casualty insurance
industry, in general, is affected by inflation. With respect to losses,
the Company's claim severity is affected by the impact of inflation on
the cost of automobile repair parts, medical costs and lost wages. The
costs of adjusting claims and other underwriting expenses have also been
adversely affected by inflationary pressures on salaries and employee
benefits. The Company receives rate increases based in part upon its
experience as well as the industry's experience. Accordingly, premium
increases generally follow the rate of inflation.
Item 8. Financial Statements and Supplementary Data
See page F1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to the Company's Charter and By-Laws, the Board of
Directors of the Company consists of 14 members divided into three
classes: Class I, Class II and Class III. Classes I and III consist of
five directors each and Class II consists of four directors. One class
of directors is elected in each year for a three-year term. All of the
directors of the Company are also directors of Empire and Centurion. On
March 4, 1996, Mr. Richard G. Petitt was appointed by the Board of
Directors as a Class III director, Chairman of the Board and Chief
Executive Officer filling a Board vacancy created by the resignation of
Mr. Robert Iacona. Currently, a vacancy exists on the Board owing to the
resignation of Mr. Thomas A. Ruden, a Class I director.
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
Richard G. Petitt, 47, Principal Occupation - Chairman of the
Director, Chairman of the Board and Chief Executive Officer of the
Board & Chief Executive Company and Empire since March, 1996.
Officer Chairman of the Board and President of
Colonial Penn Life Insurance Company since
March, 1992 and August 1991, respectively.
Since September 1983, has served in
various executive capacities at Leucadia
and its subsidiaries including Vice
President of Leucadia and President of the
Sperry & Hutchinson Co., Inc.
Director since March 1996; current term
expires 1996.
Andrew W. Attivissimo,56, Principal Occupation - President of the
Director, President & Company and Empire since August 1991.
Chief Operating Officer Chief Operating Officer of the Company
and Empire since December 1995.
Previously, Chief Executive Officer of the
Company and Empire from August 1991 to
December 1995. Senior Vice President and
Chief Financial Officer of the Company and
Empire from February 1985 to August 1991
and Treasurer from September 1988 to
August 1991.
Director since September 1988; current term
expires 1996.
Martin B. Bernstein, 62, Principal Occupation - President and
Director Director of Ponderosa Fibres of America
Inc. (a pulp manufacturer for paper
producers).
Director since February 1988; current term
expires 1998.
<PAGE>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
Ian M. Cumming, 55, Principal Occupation - Presently and
Director since June 1978, Chairman of the
Board and a Director of Leucadia.
Director of Skywest, Inc. (a Utah-based
regional air carrier) since June 1986.
Director of M.K.Gold (an international gold
mining company) since June 1995.
Director since February 1988; current
term expires 1997.
Thomas E. Mara, 50, Principal Occupation - Presently and
Director since May 1980, Executive Vice
President of Leucadia and Treasurer of
Leucadia since January 1993.
Director since October 1994; current
term expires 1997.
Oliver L. Patrell, 68, Principal Occupation - Independent
Director consultant. Previously, Chairman of the
Board of Colonial Penn Insurance
Company ("CPIC") from August 1991 to
February 1996. Chief Executive Officer
of CPIC from August 1991 to May 1995.
President of CPIC from August 1991 to May 1994.
Chairman of the Board of the Company and
Empire from February 1984 to February
1996. President of the Company and Empire
from February 1983 to August 1991. Chief
Executive Officer of the Company and
Empire from February 1983 to August 1991
and also from December 1995 to February
1996.
Director since February 1983; current
term expires 1996.
Louis V. Siracusano, 49, Principal Occupation - Attorney with
Director McKenna, Fehringer, Siracusano &
Chianese (a law firm) for over five
years.
Director since 1985; current term
expires 1998.
Joseph S. Steinberg, 52, Principal Occupation - President since
Director January 1979 and Director since
December 1978 of Leucadia. Director of
M.K. Gold (an international gold mining
company) since June 1995. Director since
June 1988 of Jordan Industries, Inc., a
holding company principally engaged in
manufacturing. Chairman of the Board of
CPIC since February 1996.
Director of the Company since February
1988; current term expires 1997.
<PAGE>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
Daniel G. Stewart, 77, Principal Occupation - Independent
Director consulting actuary. Previously, Senior
Vice President of Mutual Benefit Life
Insurance Company from 1985 to November
1991.
Director since 1980; current term expires
1997.
Lucius Theus, 73, Principal Occupation - President, The
Director U.S. Associates (consultants in civic
affairs, human resources and business
management) since 1989. Principal and
Director of the Wellness Group, Inc.
(a provider of health promotion
programs) since 1989; Corporate
Director, Civic Affairs of Allied
Corporation (a diversified industrial
company) since 1979.
Director since 1980; current term expires
1998.
Helen W. Vogel, 78, Principal Occupation - Teacher of
Director political science at the White Plains,
New York, Senior Center for over five
years.
Director since 1980; current term expires
1998.
Harry H. Wise, 57, Principal Occupation - President and
Director Director, H.W. Associates, Inc.
President and Director, Madison Equity
Capital Corp. (a sponsor of private
investment partnerships).
Director since February 1988; current
term expires 1996.
Henry H. Wulsin, 48, Principal Occupation - President since
Director May 1994 and Chief Executive Officer
since May 1995 of CPIC. Previously,
Chief Operating Officer from August
1991 to May 1995 and Executive Vice
President from August 1991 to May 1994
of CPIC. Senior Vice President of the
Company and Empire from May 1988
to September 1991.
Director since 1993; current term expires
1996.
Larry A. Frakes, 44, Principal Occupation - Senior Vice Senior
Senior Vice President President of the Company and Empire
since November 1991. Previously, Senior
Vice President from March 1990 to
November 1991 and Vice President from
1987 to March 1990 of Insurance Company
of North America.
<PAGE>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
Francis M. Colalucci, 51, Principal Occupation - Senior Vice
Senior Vice President, Chief President, Chief Financial Officer
Financial Officer & Treasurer and Treasurer of the Company and
Empire since January 1996. Previously,
Vice President & Corporate Treasurer
of Continental Corporation from 1991
to January 1996.
Thomas A. Daffron, 57, Principal Occupation - Senior Vice
Senior Vice President President of the Company and Empire
since August 1995. Previously, Vice
President of Home Insurance Company
from July 1990 to July 1995.
Bruce J. Osterman, 45, Principal Occupation - Vice President
Vice President & Controller & Controller of the Company and
Empire since September 1991.
Previously, Assistant Vice President
& Assistant Treasurer of the Company
and Empire from February 1985 to
September 1991.
Item 11. Executive Compensation
The Company does not directly remunerate officers. Thirty percent
of salaries paid to officers and all other employees of Empire are
allocated and charged to the Company along with other operating expenses
pursuant to the pooling arrangement described above in Item 1,
"Business". In 1995, no executive officer received annual compensation
in excess of $100,000 under the pooling arrangement.
The Company does not directly remunerate directors. The directors
of the Company and Empire who are not employees of Empire and the Company
are paid an annual fee of $5,000. In addition, eligible directors
receive $1,500 for each joint board meeting attended. For attendance at
a meeting of a committee of the joint board, such directors receive
$1,500 per meeting. Each committee chairmanship receives an annual
retainer fee of $500. All fees paid to such directors are shared in
accordance with the pooling arrangement.
Pension Plan
Pensions for officers and employees of the Company are provided
under a trusteed non-contributory pension plan ("1985 Plan"). Any
employee is eligible for membership in the 1985 Plan on July 1st or
January 1st of any plan year after which he has completed one full year
of service, consisting of a minimum of 1,000 credited hours, with Empire,
provided they have attained the age of 21 years on such date.
Members of the 1985 Plan receive a basic pension if they work until
their normal retirement date which is the last day of the month in which
they attain 65 years of age with 5 years of credited service. Any member
in the active employ of Empire may elect early retirement between 55 and
65. A member electing early retirement must have at least 10 years of
service. A monthly average of total compensation received over the
<PAGE>
highest 5 consecutive plan or calendar years before retirement is taken
to compute benefits as follows:
1.30% of the first $833 per month of average pay, plus
1.75% of average pay over $833 per month.
The sum of these two credits is multiplied by the years of credited
service. The basic benefit amounts listed in the table below are not
subject to any deduction for Social Security benefits or other offset
amounts. The maximum benefit payable under the pension plan is $90,300
per year.
<TABLE>
The amounts set forth in the following table show estimated annual
benefits upon retirement to which the Company contributes 30% of such
cost through the pooling arrangement.
<CAPTION>
Highest
Five Year Average
Compensation at Years of Service
Retirement 10 15 20 25 30 35
<C> <C> <C> <C> <C> <C> <C>
$ 10,000 $ 1,300 $ 1,950 $ 2,600 $ 3,250 $ 3,900 $ 4,550
25,000 3,925 5,888 7,850 9,813 11,775 13,738
50,000 8,300 12,450 16,600 20,750 24,900 29,050
75,000 12,675 19,013 25,350 31,688 38,025 44,363
100,000 17,050 25,575 34,100 42,625 51,150 59,675
150,000 25,800 38,700 51,600 64,500 77,400 90,300
</TABLE>
Salary Cap Restoration Plan
In 1994, Empire established a Salary Cap Restoration Plan ("SCRP")
for certain corporate officers. Under the SCRP, Empire will provide
these officers with an additional benefit, to be paid in a lump-sum upon
retirement, equal to the difference between the actuarially determined
lump-sum benefits, as computed under the 1985 Plan, of the officer's
highest five year average compensation (not to exceed $300,000) at
retirement and the current maximum compensation limit of $150,000. The
SCRP is an unfunded plan. Under the pooling arrangement, the Company is
obligated to pay 30% of the cost of the SCRP.
Employment Agreements
Empire has an employment agreement with Mr. Attivissimo pursuant to
which he has agreed to continue to serve as a senior executive officer
of Empire. Mr. Attivissimo's employment agreement which was to have
ended December 31, 1995, was renewed for a one year term effective
January 1, 1996. Mr. Attivissimo's employment agreement will continue
from year to year thereafter unless the period of employment is
terminated effective at the end of a calendar year by either Mr.
Attivissimo or Empire on at least six months written notice.
The Board of Directors may review annually the compensation payable
to Mr. Attivissimo in accordance with Empire's existing merit pay plan.
<PAGE>
Bonus compensation will continue under the existing Incentive Plan under
which Mr. Attivissimo is eligible for a target bonus of 30% of base
salary with a maximum bonus of 65% of base salary.
Pursuant to the employment agreement, Empire is to provide Mr.
Attivissimo with annual supplemental retirement benefits equal to 60%
of the average of his compensation (base salary, bonus compensation and
performance award) over the highest five consecutive years of service
with Empire, less Empire's qualified retirement plan benefits and less
one-half of social security benefits, provided that Mr. Attivissimo shall
receive a minimum annual supplemental retirement benefit equal to 30% of
such average compensation, irrespective of any such offsets or any
vesting requirements.
Under the pooling arrangement, the Company is obligated to pay 30%
of the compensation and cost of benefits payable to Mr. Attivissimo under
his employment agreement.
Long Term Incentive Plan
Prior to 1996, Empire had a Long Term Incentive Plan which, based
upon the attainment of certain performance goals, awarded officers with
units of participation in a compensation pool. The plan was terminated
in 1996 and, accordingly, no awards were granted in 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of March 15, 1996 as
to the Common Shares of the Company owned of record and beneficially by
each person who owns of record, or is known by the Company to own
beneficially, more than 5% of such Common Shares.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent of
Owner Ownership Class
Empire Insurance Company 5,987,401 Common 84.6%
122 Fifth Avenue Shares owned of
New York, N.Y. 10011 record
As discussed in Item 1, "Business", Leucadia (and certain of its
wholly- owned subsidiaries) may be deemed a parent of Empire and
therefore of the Company as a result of its indirect ownership of 100%
of the outstanding common stock of Empire. Further, a wholly owned
subsidiary of Leucadia, Baldwin Enterprises, Inc., directly owns
approximately 4.6% of the outstanding common stock of the Company.
Security Ownership of Management
The following table sets forth information concerning beneficial
ownership of the Company's common stock and the equity securities of
Leucadia by all directors and by directors and officers of the Company
as a group as of December 31, 1995 with respect to the Company's Common
Shares and as of March 15, 1996 with respect to Leucadia's and Empire's
securities.
<PAGE>
<TABLE>
Each holder shown exercises sole voting and sole investment power of the
shares shown opposite his or her name.
<CAPTION>
Name of Beneficial Amount and Nature of Percent of
Owner Beneficial Ownership Class
<S> <C> <C>
Andrew W. Attivissimo 17,000 *
Martin B. Bernstein - -
Ian M. Cumming (1) - -
Thomas E. Mara - -
Oliver L. Patrell (2) 16,950 *
Richard G. Petitt - -
Louis V. Siracusano - -
Joseph S. Steinberg (1) - -
Daniel G. Stewart - -
Lucius Theus - -
Helen W. Vogel - -
Harry H. Wise - -
Henry H. Wulsin - -
Directors and officers
as a group (15 persons) (3) 33,950 *
<FN>
* Less than 1% of Common Stock
<FN>
(1) Although neither Ian M. Cumming nor Joseph S. Steinberg directly owns
any shares of Common Stock of the Company, by virtue of their
respective approximately 16% and 15% interest in Leucadia each may
be deemed to be the beneficial owner of a proportionate number of the
shares of Common Stock of the Company beneficially owned by Leucadia
through its 100% ownership of Empire.
<FN>
(2) Excludes 8,200 shares of the Company held in a remainder trust as
to which Mr. Patrell disclaims beneficial ownership.
<FN>
(3) Aside from the beneficial ownership described in note 1 to this
table, five directors beneficially own common shares of Leucadia,
which in the aggregate, represent less than 1% of Leucadia's common
stock.
</TABLE>
Item 13. Certain Relationships and Related Transactions
See Item 1 of this report and Notes 1,3,8,9 and 10 of Notes to
Consolidated Financial Statements for information relating to
transactions and relationships between the Company and its affiliates.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedules
1. The following Financial Statements of Allcity Insurance Company
are included in item 8:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993.
Consolidated Statements of Changes in Capital Accounts for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended December
31 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Schedule VI - Supplemental Insurance Information Concerning
Property/Casualty Insurance Operations for the years ended December
31, 1995, 1994 and 1993.
2. The information for Schedules I, IV and V required to be filed
pursuant to Regulation S-X, Article 7 is contained in the Notes to
Consolidated Financial Statements and, therefore, these schedules
have been omitted. The information required by Schedules III and
of Article 7 is combined in Schedule VI - Supplemental Insurance
Information Concerning Property/Casualty Insurance Operations. All
other required schedules are not applicable.
3. The exhibits required by Item 601 of Regulation S-K have been
filed herewith, see attached Exhibit Index.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1995, there were no reports
Form 8-K filed for the Company.
(c) Exhibits Required by Item 601 of Regulation S-K.
See attached Exhibit Index.
(d) Financial Statements Required by Regulation S-X.
See Item 14(a).
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALLCITY INSURANCE COMPANY
March 27, 1996 By:ANDREW W. ATTIVISSIMO
Andrew W. Attivissimo
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date set forth
above.
ANDREW W. ATTIVISSIMO MARTIN B. BERNSTEIN
Andrew W. Attivissimo Martin B. Bernstein
Director, President Director
JOSEPH S. STEINBERG LOUIS V. SIRACUSANO
Joseph S. Steinberg Louis V. Siracusano
Director Director
THOMAS E. MARA DANIEL G. STEWART
Thomas E. Mara Daniel G. Stewart
Director Director
HARRY H. WISE LUCIUS THEUS
Harry H. Wise Lucius Theus
Director Director
BRUCE J. OSTERMAN OLIVER L. PATRELL
Bruce J. Osterman Oliver L. Patrell
Vice President & Controller Director
(Principal Financial &
Accounting Officer)
<PAGE>
EXHIBIT INDEX
The following designated exhibits, as indicated below, are either
filed herewith (if indicated by an asterisk) or have heretofore been
filed with the Securities and Exchange Commission under the Securities
Act of 1933 or the Securities Exchange Act of 1934 and are incorporated
herein by reference to such filings. Reference is made to Item 8 of this
Form 10-K for a listing of certain financial information and statements
incorporated by reference herein.
Exhibit Number Description of Document
3 Corporate charter, as amended, and by-
laws, as amended, of the Company
(Incorporated by reference to Exhibit 3
of the Company's Annual Report on Form
10-K for the year ended December 31,
1994).
10(a) Pooling Agreement, as amended through
March 31, 1982, between Empire and the
Company (Incorporated by reference to
Exhibit 10(a)-20 of the Company's Form
8 Amendment No. 1 of its annual Report
for the year ended December 31, 1981).
10(b) Lease Agreement, dated November 15, 1982
between Empire and 122 Fifth Associates
(Incorporated by reference to Exhibit
10(d) of the Company's Annual Report on
Form 10-K or the year ended December 31,
1982).
10(c) Centurion Agreement, made effective as
of August 21, 1987 by and between Empire
and the Company, and Centurion.
(Incorporated by reference to Exhibit
10(e) of the Company's Annual Report on
Form 10-K for the year ended December 31
1987).
10(d) Empire Mutual Executive Deferred
Compensation Plan dated November 17,
1987. (Incorporated by reference to
Exhibit 10(f) of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1987).
10(e) Empire Mutual Insurance Company
Supplemental Retirement Plan dated
November 17, 1987. (Incorporated by
reference to Exhibit 10(g) of the
Company's Annual Report on Form 10-K for
the year ended December 31, 1987).
<PAGE>
Exhibit Number Description of Document
10(f) Tax Allocation Agreement dated February 28,
1989 among the Company, PHLCORP, Empire,
Centurion, Oscar Katz Incorporated, Oscar
Katz Taxi Brokerage Incorporated,
Executroll Services Corporation, Empall
Agency Incorporated and Concourse Agency
Incorporated. (Incorporated by reference
to Exhibit 10(m) of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1988).
10(g) Employment Agreement made as of January 1,
1993 by and between Empire and Andrew W.
Attivissimo. (Incorporated by reference
to Exhibit 10(g) of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1992).
10(i) Empire Insurance Company Salary Cap
Restoration Plan dated May 26, 1994.
(Incor-porated by reference to Exhibit
10(i) of the Company's Annual Report on
Form 10-K for the year ended December 31,
1994).
28*(P) Schedule P of the Registrant's 1995 Annual
Statement to Insurance Departments is
filed as Exhibit 28 herewith.
<PAGE>
ITEM 8. Financial Statements and Supplemental Data
The following financial information is submitted herein:
Page
Report of Independent Accountants F2
Consolidated Balance Sheets - December 31, 1995 and 1994 F3
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 F4
Consolidated Statements of Changes in Capital Accounts for
the years ended December 31, 1995, 1994 and 1993 F5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F6
Notes to Consolidated Financial Statements. F7
Schedule:
Schedule VI - Supplemental Insurance Information Concerning
Property/Casualty Insurance Operations for the years
ended December 31, 1995, 1994 and 1993 F25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Allcity Insurance Company:
We have audited the consolidated financial statements and the
financial statement schedule of ALLCITY INSURANCE COMPANY and
SUBSIDIARY listed in the index on page F1 of this Form 10-K. These
consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Allcity Insurance Company and Subsidiary as of December
31, 1995 and 1994, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information required to be
included therein.
As more fully discussed in Note 2 to the consolidated financial
statements, in 1993, the Company changed its method of accounting
for postretirement benefits other than pensions, postemployment
benefits, multiple year retrospectively rated contracts and certain
investments in debt and equity securities, all as set forth in
various pronouncements of the Financial Accounting Standards Board
and the Emerging Issues Task Force.
COOPERS & LYBRAND L.L.P.
New York, New York
February 21, 1996
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except share and per share amounts)
<CAPTION>
December 31
1995 1994
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of
$259,566 in 1995 and $222,688 in 1994) $261,473 $211,413
Held to maturity (aggregate fair value
of $503 in 1995 and $486 in 1994) 478 479
Short term (at cost) 11,597 25,986
TOTAL INVESTMENTS 273,548 237,878
Cash 3,272 3,943
Agents' balances, less allowance for
doubtful accounts ($1,093 in 1995 and
$952 in 1994) 21,155 19,319
Accrued investment income 3,720 3,321
Reinsurance balances receivable 257,615 219,854
Prepaid reinsurance premiums 79,285 77,614
Equity in pools and associations 667 1,175
Deferred policy acquisition costs 8,578 8,569
Deferred tax benefit 10,281 8,535
Other assets 2,699 2,300
TOTAL ASSETS $660,820 $582,508
LIABILITIES
Unpaid losses $348,832 $297,846
Unpaid loss adjustment expenses 51,047 43,753
Unearned premiums 125,942 123,186
Accounts payable and accrued liabilities 1,964 2,347
Drafts payable 4,844 3,436
Due to affiliates 17,865 20,422
Unearned service fee income 5,109 4,256
Reserve for servicing carrier claim
expenses 6,910 5,250
Other postretirement benefits 3,537 3,335
Reinsurance balances payable 3,476 221
Other liabilities 1,834 2,281
Surplus note 13,524 12,911
TOTAL LIABILITIES 584,884 519,244
CAPITAL
Common stock, par value $1.00: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 1995 and 1994 7,079 7,079
Additional paid-in capital 9,331 9,331
Net unrealized appreciation (depreciation)
on investments (net of taxes of $667
and $(406) in 1995 and 1994, respectively 1,240 (10,869)
Retained earnings 58,286 57,723
TOTAL CAPITAL 75,936 63,264
TOTAL LIABILITIES AND CAPITAL $660,820 $582,508
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except share
and per share amounts)
<CAPTION>
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
REVENUES
Premiums earned $ 94,251 $ 89,044 $76,920
Net investment income 15,358 13,187 12,265
Service fee income 7,683 4,958 3,551
Net securities (losses) and gains (205) (662) 1,413
Other income 805 759 483
117,892 107,286 94,632
LOSSES AND EXPENSES
Losses 77,675 60,714 52,509
Loss adjustment expenses 12,652 10,142 8,603
Other underwriting expenses, less
deferrals of $18,359 in 1995,
$17,524 in 1994 and $15,252 in
1993 7,810 8,698 6,808
Amortization of deferred policy
acquisition costs 18,349 16,692 15,222
Interest on surplus note 613 516 420
117,099 96,762 83,562
INCOME BEFORE FEDERAL INCOME TAXES
AND CUMULATIVE EFFECTS OF CHANGES
IN ACCOUNTING PRINCIPLES 793 10,524 11,070
FEDERAL INCOME TAXES 230 3,623 3,848
INCOME BEFORE CUMULATIVE EFFECTS
OF CHANGES IN ACCOUNTING PRINCIPLES 563 6,901 7,222
Cumulative effect to January 1, 1993
of change in accounting for:
Income taxes 3,650
Postretirement benefits (net of
income taxes of $1,008) (1,956)
Retrospectively rated reinsurance
contracts (net of income taxes of
$2,306) 4,477
NET INCOME $ 563 $ 6,901 $13,393
Per share data, based on 7,078,625
average shares outstanding in 1995
and 1994, and 7,052,906 in 1993:
Income before cumulative effects of
changes in accounting principles $0.08 $0.97 $1.02
Cumulative effects of changes in
accounting principles 0.88
NET INCOME PER SHARE $0.08 $0.97 $1.90
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS
ALLCITY INSURANCE COMPANY
(In thousands)
<CAPTION>
C A P I T A L A C C O U N T S
Net
Additional Unreal
Common Stock Paid-In App(Dep) Retained Tota
Shares Amount Capital on Invest Earnings Capital
<S> <C> <C> <C> <C> <C> <C>
Bal at January 1, 1993 7,040 $7,040 $9,311 - $37,429 $53,780
Net income for the year 13,393 13,393
Exercised stock options 39 39 20 59
Cumulative effect of change
in accntg principle (net of
income taxes of $1,329) $2,581 2,581
Bal at December 31, 1993 7,079 7,079 9,331 2,581 50,822 69,813
Net income for the year 6,901 6,901
Change in unrealized depreciation
on investments (net of income
tax benefit of $1,803) (13,450) (13,450)
Bal at December 31, 1994 7,079 7,079 9,331(10,869) 57,723 63,264
Net income for the year 563 563
Change in unrealized appreciation
on investments (net of income
taxes of $1,073) 12,109 12,109
Bal at December 31, 1995 7,079 $7,079 $9,331 $1,240 $58,286 $75,936
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
<CAPTION>
Year Ended December 31
1995 1994 1993
NET CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 563 $ 6,901 $ 13,393
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effects of changes in
accounting principles (6,171)
Amortization (17) 335 531
Net securities losses and (gains) 205 662 (1,413)
Increase in agents' balances (1,836) (992) (2,023)
Increase in reinsurance
balances receivable (37,761) (34,806) (12,308)
Increase in prepaid reinsurance
premiums (1,671) (12,912) (3,948)
Increase in deferred policy
acquisition costs (9) (832) (30)
Increase in deferred tax benefits (1,746) (2,486) (1,756)
Increase in unpaid losses
and loss adjustment expenses 58,280 50,766 21,567
Increase in unearned premiums 2,756 18,461 6,253
Increase in drafts payable 1,408 319 549
(Decrease) increase in due to
affiliates (2,557) 3,274 (72)
Increase in unearned service fees 853 1,206 453
Increase in reserve for service
carrier claims expenses 1,660 1,448 989
Increase (decrease)in reinsurance
balances payable 3,255 (591) (5,614)
Other items, net (1,227) 1,648 7,783
NET CASH PROVIDED BY OPERATING
ACTIVITIES 22,156 32,401 18,183
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for Sale:
Acquisition of fixed maturities (107,352) (84,679) (108,315)
Proceeds from sale of fixed maturities 48,405 56,303 39,827
Proceeds from maturities of fixed
maturities 21,731 16,809 24,535
Net change in short-term investments 14,389 (22,954) 28,425
NET CASH USED BY INVESTING
ACTIVITIES (22,827) (34,521) (15,528)
NET CASH FLOWS FROM FINANCING ACTIVITIES
Exercised stock options 59
NET CASH PROVIDED BY FINANCING
ACTIVITIES 59
NET (DECREASE) INCREASE IN CASH (671) (2,120) 2,714
Cash at beginning of year 3,943 6,063 3,349
Cash at end of year $ 3,272 $ 3,943 $ 6,063
Cash paid for federal income taxes $ 3,714 $ 6,393 $ 3,327
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLCITY INSURANCE COMPANY
NOTE 1--ORGANIZATION
Allcity Insurance Company ("Allcity" or the "Company"), a property and
casualty insurance company, is an 84.6% owned subsidiary of Empire
Insurance Company ("Empire"). Empire Insurance Group (the "Group") is
comprised of Allcity and its subsidiary, Empall Agency, Inc. ("Empall")
and Empire and its other subsidiaries. Through various subsidiaries,
Leucadia National Corporation ("Leucadia") owns 100% of Empire's common
shares.
The property and casualty insurance business written by Empire and
Allcity is subject to a pooling agreement under which premiums, losses,
loss adjustment expenses and other underwriting expenses are shared on
the basis of 70% to Empire and 30% to Allcity. The pooling percentages
have been changed from time to time and may be changed in the future
subject to New York State Insurance Department approval. Allcity has no
employees of its own. Administrative services are provided by Empire and
30% of the related expenses are allocated to Allcity.
The Company's three business segments and principal lines of business are
(1) automobile (private passenger and commercial), (2) commercial
(commercial multi-peril, workers' compensation and other liability) and
(3) personal and miscellaneous (fire, allied and homeowners) insurance
coverages. Based on the Company's 1995 net premiums written,
approximately 65.6%, 30.2% and 4.2% of such premiums were for the
automobile, commercial and other lines of business, respectively. The
Company markets its products primarily to individuals, retail
establishments, restaurants, taxicab owners, and several types of service
contractors. A substantial portion of the Company's and Empire's
automobile business, both private passenger and commercial, is assigned
risk business acquired through contractual arrangements with other
competing insurance companies. These contractual arrangements provide
for service fees to the Company and Empire within parameters established
by the New York State Insurance Department. In addition, the Company
acts as a servicing carrier providing administrative services in return
for a fee to the New York Public Automobile Pool. Under similar
arrangements, Empire acts as a servicing carrier for the Massachusetts
Limousine/Taxi Program and the New Hampshire Commercial Automobile
Insurance Procedure. Under the pooling arrangement, the Company assumes
30% of the fees and costs of these arrangements.
The Company and Empire are licensed to transact insurance in the State
of New York with Empire being additionally licensed in Connecticut,
Massachusetts, Missouri, New Hampshire and New Jersey. Based on 1995
direct premiums written, approximately 96.7% of the property and casualty
business written by the Company and Empire was transacted in the State
of New York.
The Company and Empire distributes its products through five general
agents, one of which is an Empire subsidiary, and 385 independent agents
and brokers. The Company's general agents produced approximately 21% of
the Company's 1995 premium revenues.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Empall. The preparation of financial
statements in conformity with generally accepted accounting principles
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLCITY INSURANCE COMPANY
NOTE 1--ORGANIZATION--CONTINUED
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2--ACCOUNTING POLICIES
Investments: In May 1993 the Financial Accounting Standards Board issued
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", ("SFAS 115"). The Company adopted SFAS 115 on December 31,
1993. Under SFAS 115, marketable debt and equity securities are
designated as either (1) "held to maturity" and carried at amortized
cost, (2) "trading" and carried at fair value with differences between
cost and fair value reflected in results of operations or (3) "available
for sale" and carried at fair value with differences between cost and
fair value being reflected as a separate component of capital, net of
income tax effects. The adoption of SFAS 115 resulted in an increase in
capital of $2,581,000 (net of applicable income tax) at December 31,
1993.
At December 31, 1995 and 1994, investments in debt securities on deposit
with the New York State Insurance Department, which the Company has the
positive intent and ability to hold to maturity, are classified as
"Investments held to maturity". All other investments in debt securities
are classified as "Investments available for sale" and stated at fair
value. Net unrealized appreciation (depreciation) on investments
available for sale (net of tax) is included as a separate component of
capital.
Net securities gains or losses incurred upon disposal of investments are
determined on a specific identification basis and are included in net
income. Investments with an impairment in value considered to be other
than temporary are written down to estimated net realizable value.
Unearned Premiums: Unearned premiums have been calculated using the
monthly pro rata method.
Unpaid Losses and Loss Adjustment Expenses: Liabilities for unpaid
losses and loss adjustment expenses ("LAE") are determined using case
basis evaluations, statistical analyses for incurred but not reported
losses and estimates for salvage and subrogation recoverable and
represent estimates of ultimate net claim costs and LAE. These estimates
are subject to the effect of trends in future claim severity and
frequency experience. Adjustments to such estimates are made from time
to time to reflect changes in loss experience and are reflected in
current earnings. Liabilities for losses are not discounted except for
certain long-term disability claims under workers' compensation insurance
which are not material.
Reinsurance: Unpaid losses, unpaid loss adjustment expenses and
unearned premiums are stated gross of reinsurance ceded. Premiums written
and earned, losses and LAE incurred, and other underwriting expenses are
stated net of reinsurance ceded.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 2--ACCOUNTING POLICIES--Continued
On July 22, 1993, the Financial Accounting Standards Board's Emerging
Issues Task Force reached a consensus opinion on Issue No. 93-6,
"Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding
and Assuming Enterprises", ("EITF 93-6"). EITF 93-6, which was required
to be adopted no later than the third quarter of 1993, is applicable to
certain per risk, excess of loss reinsurance contracts entered into
during the normal course of the Company's business. As permitted, the
Company recognized the adoption of EITF 93-6 as a cumulative effect of
a change in accounting principle (retroactive to January 1, 1993) and
recorded a reduction in reinsurance balances payable of $6,783,000 and
a credit to income of $4,477,000, net of taxes.
Pension Cost: Empire funds actuarially determined pension costs as
currently accrued; 30% of such pension costs are allocated to Allcity.
Other Postretirement and Postemployment Benefit Costs: Effective January
1, 1993, the Company adopted Statements of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions",("SFAS 106"), and No. 112, "Employers' Accounting for
Postemployment Benefits", ("SFAS 112"). SFAS 106 and SFAS 112 require
companies to accrue the cost of providing certain postretirement and
postemployment benefits during the employee's period of service. SFAS 106
and SFAS 112 did not have a material effect on net income for 1995 and
1994 and income before cumulative effects of changes in accounting
principles for 1993.
Policy Acquisition Costs and Premium Deficiencies: Policy acquisition
costs such as commissions, premium taxes and certain other underwriting
expenses, net of reinsurance allowances, are deferred (to the extent
recoverable) and amortized ratably over the terms of the related
policies. Anticipated losses, LAE and policy maintenance expenses, based
on historical and current experience, are considered in determining the
recoverability of the acquisition costs. Should the anticipated losses,
LAE and policy maintenance expenses, net of anticipated investment
earnings, exceed the related unearned premiums, the Company would provide
for the indicated deficiency.
Participating Policies: Participating business on workers' compensation
lines constitutes approximately 8% of the Company's policies in force and
net premiums written. Amounts transferred to the participating
policyholders' funds are determined by means of specific identification
based upon premium volume and loss experience. The amount of dividends
to be paid to participating policyholders is approved quarterly by the
Board of Directors. The amount of policyholders' dividends on
participating policies was $523,000, $452,000 and $384,000 in 1995, 1994
and 1993, respectively. Undistributed dividends payable to participating
policyholders are included as a liability in the balance sheet.
Servicing Arrangements: Service Fee Income from assigned risk business
acquired through contractual arrangements with other competing insurance
companies is recognized as revenue and earned over the life of the
covered policies on a monthly pro-rata method. Premiums earned, losses
and loss adjustment expenses incurred and related balance sheet accounts
are reflected in the accompanying financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 2--ACCOUNTING POLICIES--Continued
Service fee income for the administrative services, including
underwriting, policy issuance, premium collection and claims services,
provided to the New York Public Automobile Pool (the "Pool") is recorded
as a reduction to other underwriting expenses and is earned over the life
of the policies issued. The premiums and losses processed by the Company
on behalf of the Pool, which are not reflected in the consolidated
statements of operations, are as follows for the years ended December 31,
1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Premiums Earned $ 60,458 $60,141 $52,338
Losses Incurred 100,595 57,654 55,896
Unpaid Losses 117,736 79,695 64,987
</TABLE>
The administrative services business is recorded on the financial
statements of the insurance companies participating in the Pool. The
Company is liable only for the loss adjustment expenses which are
reflected as a reserve for servicing carrier claim expense and are
determined using case basis evaluations and statistical analyses.
Federal Income Taxes: The Company uses the liability method in providing
for income taxes. Effective January 1, 1993, the Company adopted SFAS
109, "Accounting for Income Taxes", ("SFAS 109"). Under the liability
method, deferred income taxes are provided at the statutorily enacted
rates for differences between the tax and accounting bases of
substantially all assets and liabilities and for carryforwards. A
valuation allowance is provided if deferred tax assets are not considered
more likely than not to be realized.
Earnings Per Share: Earnings per share are based on the weighted average
number of common shares outstanding. There were no outstanding common
stock equivalents during 1995 and 1994 and during 1993 the common stock
equivalents were not significant.
Cumulative Effects of Changes in Accounting Principles: A summary of
amounts included in cumulative effects of changes in accounting
principles and related per share amounts for the year ended December
31, 1993 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Amount Per Share Amount
<S> <C> <C> <C>
SFAS 109 $ 3,650 $ 0.52
SFAS 106, less income taxes of $1,008 (1,956) (0.28)
EITF 93-6,less income taxes of $2,306 4,477 0.64
$ 6,171 $ 0.88
<FN>
Presentation: Certain prior year amounts have been reclassified to
conform with the 1995 presentation.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 3--SURPLUS NOTE
The Company issued a surplus note to Empire in 1980. The note has no due
date and does not form a part of the legal liabilities of the Company.
The surplus note provides, among other things, for interest to be accrued
on the note based on a bank's prime rate. Neither the principal amount
of the surplus note nor the accrued interest may be paid, in whole or in
part, without the consent of the Superintendent of Insurance of the State
of New York ("Superintendent") and must be repaid, in whole or in part,
when so ordered by the Superintendent.
NOTE 4--INVESTMENT OPERATIONS
<TABLE>
Investment income is summarized as follows:
<CAPTION>
Year Ended December 31
1995 1994 1993
(Thousands of dollars)
<S> <C> <C> <C>
Investment income:
Fixed maturities $13,606 $12,465 $12,147
Short-term investments 2,126 1,007 372
15,732 13,472 12,519
Less: Investment expenses 374 285 254
NET INVESTMENT INCOME $15,358 $13,187 $12,265
</TABLE>
<TABLE>
Investments at December 31, 1995 are summarized as follows:
<CAPTION>
Gross Unrealized Aggregate
Amortized Appre- Depre- Fair Carrying
Cost ciation ciation Value Amount
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $186,100 $1,755 $323 $187,532 $187,532
Mortgage-backed
securities 61,444 495 155 61,784 61,784
Foreign governments 100 8 92 92
All other corporate bonds 11,922 146 3 12,065 12,065
TOTAL INVESTMENTS
AVAILABLE FOR SALE 259,566 2,396 489 261,473 261,473
Held to maturity:
U.S. Treasury securities 478 25 503 478
TOTAL INVESTMENTS
HELD TO MATURITY 478 25 503 478
Short-term (at cost) 11,597 11,597 11,597
TOTAL INVESTMENTS $271,641 $2,421 $489 $273,573 $273,548
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 4--INVESTMENT OPERATIONS--CONTINUED
<TABLE>
Investments at December 31, 1994 are summarized as follows:
<CAPTION>
Gross Unrealized Aggregate
Amortized Appre- Depre- Fair Carrying
Cost ciation ciation Value Amount
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $164,971 $78 $ 7,643 $157,406 $157,406
Mortgage-backed
securities 43,374 3,120 40,254 40,254
Foreign governments 100 8 92 92
All other corporate bonds 14,243 582 13,661 13,661
TOTAL INVESTMENTS
AVAILABLE FOR SALE 222,688 78 11,353 211,413 211,413
Held to maturity:
U.S. Treasury securities 479 7 486 479
TOTAL INVESTMENTS
HELD TO MATURITY 479 7 486 479
Short-term (at cost) 25,986 25,986 25,986
TOTAL INVESTMENTS $249,153 $85 $11,353 $237,885 $237,878
</TABLE>
<TABLE>
The amortized cost and fair value of investments by contractual maturity
at December 31, 1995 are shown below (in thousands):
<CAPTION>
Aggregate
Amortized Fair
Cost Value
<S> <C> <C>
Investments available for sale:
Due in one year or less $ 31,561 $ 29,518
Due after one year through five years 164,894 168,546
Due after five years through ten years 1,667 1,625
Sub total 198,122 199,689
Mortgage-backed securities 61,444 61,784
Sub total 259,566 261,473
Investments held to maturity:
Due after one year through five years 478 503
Short-term investments 11,597 11,597
TOTAL INVESTMENTS $271,641 $273,573
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
The Company sold certain of its investments in debt securities during
1995, 1994 and 1993 and realized gross gains of $343,000, $686,000 and
$1,413,000, respectively. Gross losses of $548,000 and $1,348,000 were
realized on these sales in 1995 and 1994, respectively. In February
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 4--INVESTMENT OPERATIONS--CONTINUED
1996, the Company sold investments available for sale with an aggregate
book value at date of sale of $75,517,896 and realized gains of $455,053.
The changes in unrealized appreciation (depreciation) on investments
available for sale in fixed maturities were $13,200,000, $(15,303,000) and
$1,690,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, before income taxes.
As of December 31, 1995 and 1994, a security with a book value of
approximately $480,000 was on deposit with the New York State Insurance
Department.
NOTE 5--STATUTORY INFORMATION
<TABLE>
The following is a reconciliation of net income and surplus as reported on
a statutory basis to net income and capital as determined in conformity
with generally accepted accounting principles ("GAAP Basis") (thousands of
dollars):
<CAPTION>
NET INCOME
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Statutory basis $ 3,311 $ 5,018 $ 6,483
Add (deduct):
Change in deferred policy acquisition
costs 9 832 30
Change in allowances for doubtful
accounts (141) (79) (52)
Retrospectively rated reinsurance
contracts (4,742) 1,057 7,050
Other postretirement benefits (49) (48) (3,005)
Change in deferred tax benefit 2,820 682 3,153
Interest on surplus note (613) (516) (420)
Other (32) (45) 154
GAAP BASIS $ 563 $ 6,901 $13,393
</TABLE>
<TABLE>
<CAPTION>
CAPITAL and SURPLUS
DECEMBER 31
1995 1994
<S> <C> <C>
Statutory surplus $62,668 $55,974
Add (deduct):
Deferred policy acquisition costs 8,578 8,569
Nonadmitted assets, less allowance
for doubtful accounts 2,266 2,125
Provision for unauthorized reinsurance 130 179
Excess of statutory reserves over
statement reserves 2,055
Deferred tax benefit 10,281 8,535
Retrospectively rated reinsurance
contracts 3,365 8,107
Other postretirement benefits (568) (519)
Net unrealized appreciation
(depreciation) on investments 1,907 (11,275)
Surplus note (13,524) (12,911)
Other 833 2,425
GAAP BASIS $75,936 $63,264
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 5--STATUTORY INFORMATION--CONTINUED
The Company has paid no dividends on its common stock since 1975. Without
the approval of the New York State Insurance Department, dividends are
limited to the lowest of 1) 10% of surplus as computed on a statutory
basis 2) earned surplus determined on a statutory basis and 3) adjusted
net investment income of the 36 month period prior to declaration. The
Company does not presently anticipate paying dividends in the near future.
NOTE 6--AGENTS' BALANCES
<TABLE>
Activity affecting the allowance for uncollectible agents' balances for
the years ended December 31, 1993, 1994 and 1995 is summarized as follows
(in thousands):
<S> <C>
Balance at January 1, 1993 $ 821
Provision 1,122
Charge-offs, net of recoveries (1,070)
Balance at December 31, 1993 873
Provision 1,364
Charge-offs, net of recoveries (1,285)
Balance at December 31, 1994 952
Provision 1,577
Charge-offs, net of recoveries (1,436)
Balance at December 31, 1995 $ 1,093
</TABLE>
NOTE 7-- LOSSES AND LAE
The estimated liabilities for unpaid losses and loss adjustment expenses
("LAE") are determined using case-basis evaluations and statistical
projections and represent estimates of the ultimate net cost of all unpaid
losses and LAE incurred through December 31 of each year. These estimates
are subject to the effect of trends in future claim severity and frequency
experience. Adjustments to such estimates are made from time to time to
reflect changes in loss experience and are reflected in current earnings.
Liabilities for losses are not discounted except for certain long-term
disability claims under workers' compensation insurance where the discount
is not material.
In the following table, the liability for losses and LAE are reconciled
for each of the three years ended December 31, 1995. Included therein are
current year data and prior year development.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 7-- LOSSES AND LAE--CONTINUED
<TABLE>
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND LAE
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Liability for losses and LAE, net,
at beginning of year $121,923 $106,115 $ 96,740
Provision for losses and LAE for
claims occurring in the current year 80,061 73,790 61,308
Increase (decrease) in estimated losses
and LAE for claims occurring in prior
years 10,266 (2,934) (196)
90,327 70,856 61,112
Loss and LAE payments for claims
occurring during:
The current year 23,743 20,000 17,834
Prior years 45,789 35,048 33,903
69,532 55,048 51,737
Liability for losses and LAE, net 142,718 121,923 106,115
Reinsurance recoverable 257,161 219,676 184,718
Liability for losses and LAE
at end of year as reported in
financial statements $399,879 $341,599 $290,833
</TABLE>
During 1995, the Company strengthened reserves in automobile and workers
compensation lines by approximately $10,300,000, net of salvage and
subrogation of $471,000. Actuarial studies conducted during 1995 have
identified revised loss development patterns in automobile lines, which
may indicate that greater ultimate loss experience than previously
expected. The Company also reopened closed no-fault claims files during
1995 and made additional payments on prior years' claims. This, along
with changes in claim handling practices, have increased the difficulty
of estimating ultimate losses, and actual losses may be different than
the studies indicated. However, the Company strengthened reserves to the
levels indicated in the actuarial studies. In addition, in 1995, the
Company refined its estimate of anticipated salvage and subrogation.
Anticipated salvage and subrogation reduced incurred losses by
approximately $1,772,000, $28,000 and $300,000 for the years 1995, 1994
and 1993, respectively.
NOTE 8--REINSURANCE
The Company has obtained reinsurance coverage to reduce its risk of
exposure to large insurance claims and catastrophes. Since 1993, the
maximum single risk retained by the Company was $500,000 on workers'
compensation and $225,000 for other property and casualty lines.
Additionally, the Company carries reinsurance to protect itself against
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 8--REINSURANCE--CONTINUED
certain catastrophic losses. Its retention of lower level losses under
such treaties was $3,000,000 for 1995, 1994 and 1993. Due to the
geographic concentration of its business, the Company believes hurricanes
and windstorms are its most significant exposure to catastrophic losses.
Utilizing sophisticated computer modeling programs developed by
independent consultants to quantify its estimated exposure to such
losses, the Company believes it presently has sufficient catastrophe
reinsurance protection.
<TABLE>
Assets and insurance reserves at December 31, 1995 and 1994 include
approximately $336,450,000 and $297,290,000, respectively, representing
reinsured amounts (principally through the pooling agreement with Empire)
as follows (in thousands):
<CAPTION>
Ceded to
Empire Others Total
<S> <C> <C> <C>
As of December 31, 1995
Prepaid reinsurance premiums $ 78,255 $ 1,030 $ 79,285
Reinsurance balances receivable on:
Unpaid losses 201,100 24,011 225,111
Unpaid loss adjustment expenses 30,441 1,609 32,050
As of December 31, 1994
Prepaid reinsurance premiums $ 76,577 $ 1,037 $ 77,614
Reinsurance balances receivable on:
Unpaid losses 169,207 22,909 192,116
Unpaid loss adjustment expenses 24,232 3,328 27,560
</TABLE>
<TABLE>
An analysis of premiums, losses, LAE and commissions for the years ended
December 31, 1995, 1994 and 1993 are summarized as follows (in
thousands):
<CAPTION>
Direct Assumed Ceded Net
Empire Others Empire Others
1995
<S> <C> <C> <C> <C> <C> <C>
Premiums earned $233,695 $ 94,251 $569 $219,649 $14,615 $94,251
Losses incurred 188,198 77,671 555 179,410 9,339 77,675
LAE incurred 17,731 12,652 76 19,128 (1,321) 12,652
Commissions incurred 29,792 12,223 32 27,076 2,748 12,223
Premiums written 236,170 95,335 483 222,046 14,607 95,335
Losses paid 141,279 59,680 811 133,849 8,241 59,680
Unearned premiums(a) 112,599 46,657 223 111,792 1,030 46,657
Unpaid losses(a) 308,790 123,721 2,506 287,285 24,011 123,721
Unpaid LAE(a) 45,096 18,997 43,487 1,609 18,997
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 8--REINSURANCE--CONTINUED
<TABLE>
<CAPTION>
Direct Assumed Ceded Net
Empire Others Empire Others
1994
<S> <C> <C> <C> <C> <C> <C>
Premiums earned $211,358 $ 87,987 $ 935 $200,619 $10,617 $ 89,044
Losses incurred 149,975 60,714 434 139,238 11,171 60,714
LAE incurred 14,144 10,142 78 12,605 1,617 10,142
Commissions incurred 29,414 12,248 51 27,011 2,454 12,248
Premiums written 229,915 93,536 781 218,960 11,736 93,536
Losses paid 107,726 46,915 665 100,077 8,314 46,915
Unearned premiums(a) 110,124 45,573 308 109,395 1,037 45,573
Unpaid losses(a) 261,871 105,730 2,763 241,725 22,909 105,730
Unpaid LAE(a) 37,945 16,193 34,617 3,328 16,193
1993
Premiums earned $176,258 $76,653 $ 723 $167,118 $ 9,596 $76,920
Losses incurred 111,245 52,509 1,110 107,231 5,124 52,509
LAE incurred 9,601 8,603 58 8,855 804 8,603
Commissions incurred 23,344 10,331 61 21,285 2,120 10,331
Premiums written 181,769 78,959 811 172,620 9,960 78,959
Losses paid 98,306 44,654 799 95,350 3,755 44,654
<FN>
(a) Amounts as reflected in the balance sheet can be derived by adding
together amounts for direct and assumed and subtracting from this sum
30% of the amount ceded to Empire.
</TABLE>
The Company remains primarily liable for amounts ceded to reinsurers for
unpaid losses, LAE and unearned premiums to the extent that the assuming
reinsuring companies are unable to meet their obligations.
<TABLE>
Analysis of premiums by business segment for the years ended December 31,
1995, 1994 and 1993 are summarized as follows (in thousands):
<CAPTION>
Percentage
Assumed Ceded of Amount
Direct from to Net Assumed
Amount Empire* Empire** Amount to Net
1995
<S> <C> <C> <C> <C> <C>
Premiums written:
Automobile lines $133,427 $62,968 $133,910 $62,485 100.8%
Commercial lines 93,659 28,821 93,659 28,821 100.0%
Miscellaneous and
personal lines 9,084 4,029 9,084 4,029 100.0%
Total $236,170 $95,818 $236,653 $95,335
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 8--REINSURANCE--CONTINUED
<TABLE>
<CAPTION>
Percentage
Assumed Ceded of Amount
Direct from to Net Assumed
Amount Empire* Empire** Amount to Net
1994
<S> <C> <C> <C> <C> <C>
Premiums written:
Automobile lines $127,671 $60,997 $128,452 $60,216 101.3%
Commercial lines 94,774 30,334 94,774 30,334 100.0
Miscellaneous and
personal lines 7,470 2,986 7,470 2,986 100.0
Total $229,915 $94,317 $230,696 $93,536
1993
Premiums written:
Automobile lines $ 88,295 $48,435 $ 89,106 $47,624 101.7%
Commercial lines 86,140 28,597 86,140 28,597 100.0
Miscellaneous and
personal lines 7,334 2,738 7,334 2,738 100.0
Total $181,769 $79,770 $182,580 $78,959
<FN>
*Includes $483, $781 and $811 assumed from non-affiliates in 1995, 1994
and 1993, respectively, before the effects of the pooling agreement
described in Note 1.
<FN>
**Includes $14,607, $11,736 and $9,960 ceded to non-affiliates in 1995,
1994 and 1993, respectively, before the effects of the pooling agreement
described in Note 1.
</TABLE>
NOTE 9--FEDERAL INCOME TAXES
The Company has been included in the consolidated federal income tax
returns of Leucadia since 1993. Under the terms of the tax sharing
agreement, members compute their tax provision on a separate return basis
and are either charged their share of federal income tax resulting from
their taxable income or are reimbursed for tax benefits resulting from
losses. As of December 31, 1995 and 1994, the Company's liability to
affiliates for income taxes was $10,965,000 and $11,628,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 9--FEDERAL INCOME TAXES--CONTINUED
<TABLE>
The principal components of the deferred tax asset at December 31, 1995
and 1994 were as follows (in thousands):
<CAPTION>
1995 1994
<S> <C> <C>
Unpaid loss and loss adjustment
expense reserves $ 7,865 $ 6,997
Unearned premiums 3,266 3,190
Employee benefits and compensation 1,532 1,710
Interest accrued on surplus note 2,283 2,069
Allowance for doubtful accounts 382 333
Deferred policy acquisition costs (3,003) (2,999)
Retrospectively rated reinsurance contracts (1,179) (2,838)
Unrealized (appreciation) depreciation on
investments (667) 3,946
Other, net (198) (333)
Sub-total 10,281 12,075
Valuation allowance - (3,540)
Total $10,281 $ 8,535
</TABLE>
The Company believes that it is more likely than not that the deferred tax
asset at December 31, 1995 will be fully realized based on the
availability of taxable income in carryback periods and future taxable
income based on the past earnings history of the Company. At December 31,
1994, the Company established a valuation allowance to the extent it was
unable to carryback unrealized investment losses to prior years' realized
securities gains.
<TABLE>
For 1995, 1994 and 1993, income tax expense (exclusive of taxes applicable
to changes in accounting principles) is reflected as (in thousands):
<CAPTION>
Deferred Tax
Year Current Benefit Total
<C> <C> <C> <C>
1995 $3,050 $2,820 $ 230
1994 4,305 682 3,623
1993 4,649 801 3,848
</TABLE>
For the years 1995, 1994 and 1993, the difference between the "expected"
statutory federal income tax applicable to continuing operations and the
actual income tax expense was immaterial.
NOTE 10--PENSION PLAN, POSTRETIREMENT BENEFITS AND STOCK OPTIONS
Empire has a trusteed non-contributory pension plan ("1985 Plan") covering
substantially all employees. Current benefits are based on years of
credited service and the employee's highest compensation during any five
consecutive plan or calendar years before retirement. Empire's policy is
to fund pension costs on a current basis using an aggregate method.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 10--PENSION PLAN, POSTRETIREMENT BENEFITS AND STOCK
OPTIONS--CONTINUED
<TABLE>
The following table sets forth certain information relating to Empire's
pension plan (in thousands):
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $21,054 in 1995 and $16,892 in 1994 $ 21,545 $ 17,395
Projected benefit obligation for services
rendered to date $(29,975) $(23,047)
Plan assets at fair value (primarily bonds and
stocks) 22,349 17,301
PROJECTED BENEFIT OBLIGATION
IN EXCESS OF PLAN ASSETS (7,626) (5,746)
Unrecognized prior service cost 132 148
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 4,969 3,017
Unrecognized net obligation at transition date 644 773
ACCRUED PENSION COST INCLUDED
IN OTHER LIABILITIES $ (1,881) $ (1,808)
</TABLE>
<TABLE>
Net pension cost includes the following components (in thousands):
<CAPTION>
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during the period $1,887 $2,051 $1,367
Interest cost on projected benefit obligation 1,792 1,642 1,465
Actual return on plan assets (3,745) 372 (1,504)
Deferred gain (loss) on plan assets 2,535 (1,536) 545
Net amortization and deferral 196 358 254
NET PERIODIC PENSION COST $2,665 $2,887 $2,127
</TABLE>
In accordance with the pooling agreement, the Company's share of accrued
pension cost and net periodic pension cost is 30% of the amounts reflected
above. In determining the actuarial present value of the projected
benefit obligation, the Company utilized discount rates of 7.0% for 1995
and 1993 and 8.0% for 1994 and a 6.5% rate of increase in future
compensation levels in each of 1995, 1994 and 1993. The expected long-
term rate of return on plan assets was 7.0% during 1995, 1994 and 1993.
Empire provides certain health care and life insurance benefits for
retired employees. Substantially all of Empire's employees may become
eligible for such benefits if they reach normal or early retirement age
while still working for Empire. Those benefits are provided through an
insurance company whose premiums are based on the cost of benefits paid
during the year.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 10--PENSION PLAN, POSTRETIREMENT BENEFITS AND STOCK
OPTIONS--CONTINUED
<TABLE>
The following table sets forth certain information relating to Empire's
unfunded substantive plan for postretirement benefits (in thousands):
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ (8,159) $ (7,342)
Fully eligible active plan participants (1,743) (1,651)
Other active plan participants (2,218) (1,830)
(12,120) (10,823)
Unrecognized net loss (gain) from past
experience different from that assumed
and effects of changes in assumptions 329 (292)
ACCRUED POSTRETIREMENT BENEFITS COST $(11,791) $(11,115)
</TABLE>
<TABLE>
For the years ended December 31, 1995, 1994 and 1993, net postretirement
benefits cost included the following components (in thousands):
1995 1994 1993
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 234 $ 249 $168
Interest cost on projected benefit obligation 866 817 792
NET PERIODIC POSTRETIREMENT BENEFITS COST $1,100 $1,066 $960
</TABLE>
In accordance with the pooling agreement, the Company's share of accrued
postretirement benefit cost and net periodic postretirement benefit cost
is 30% of the amounts reflected above. In determining the accumulated
postretirement benefit obligation at December 31, 1995, 1994 and 1993,
Empire utilized discount rates of 7.0%, 8.0% and 7.0%, respectively. The
assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 16% for 1993, 15% for 1994 and 14%
for 1995 declining to an ultimate rate of 8% by 2001. If the health care
cost trend rates were increased by 1%, the accumulated postretirement
benefit obligation as of December 31, 1995, 1994 and 1993 would have
increased by approximately $544,000 ,$468,000 and $537,000, respectively,
before the effects of the pooling agreement. The effect of a 1% change in
the estimated aggregate of service and interest cost for 1995, 1994 and
1993 would be immaterial.
In 1987, Empire established a Supplemental Retirement Plan ("SERP") for
certain senior officers. Under the SERP, Empire makes contributions to a
trust account for the benefit of eligible senior officers. Eligible
officers will receive benefits determined in accordance with the formulas
and other provisions of the SERP agreement based on prior salary. Empire
expensed $700,000 during 1994 and had income, due to a reduction in
accruals, of $697,000 and $200,000 in 1995 and 1993, respectively.
Pursuant to the pooling agreement the Company is obligated to contribute
30% of the payments made under the SERP.
In 1994, Empire established a Salary Cap Restoration Plan ("SCRP") for
certain corporate officers. Under the SCRP, Empire will provide these
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 10--PENSION PLAN, POSTRETIREMENT BENEFITS AND STOCK
OPTIONS--CONTINUED
officers with an additional benefit, to be paid in a lump-sum upon
retirement, equal to the difference between the actuarially determined
lump-sum benefits, as computed under the 1985 Plan, of the officer's
highest five year average compensation (not to exceed $300,000) at
retirement and the current maximum compensation limit of $150,000. The
SCRP is an unfunded plan. During 1995, Empire had income of $274,000 due
to an accrual reduction and, during 1994, expensed $394,000. Under the
pooling arrangement, the Company is obligated to pay 30% of the cost of
the SCRP.
In 1985, Allcity adopted the Allcity Insurance Company 1985 Incentive
Stock Option Plan ("ISOP") for officers and key employees. Under this
plan, 368,420 shares were reserved for future options that may be granted
to acquire common shares at the market price at date of grant. On October
1, 1986 options were granted to acquire a total of 312,250 common shares
at an exercise price of $1.50 per common share. The plan expired in 1995.
The following table sets forth the disposition of granted options during
the year 1993:
<TABLE>
<CAPTION>
1993
<S> <C>
Exercised 39,125
Surrendered for cash 52,125
</TABLE>
NOTE 11--LEASES
Empire leases home office space under agreements ending September 30, 1998
having renewal options based on the then current fair rental rates. In
addition, these leases contain an escalation clause providing for
additional rent to cover real estate taxes and operating expenses. Future
minimum rentals, which excludes escalation amounts, on non-cancelable
leases in the aggregate for each of the next three years are as follows
(in thousands):
<TABLE>
<C> <C>
1996 $2,059
1997 2,058
1998 1,543
Total $5,660
</TABLE>
Rental expense for the Group for the years 1995, 1994 and 1993 was
$2,848,000, $2,978,000 and $2,952,000, respectively. The Company pays 30%
of these rental charges in accordance with the pooling agreement.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 12--BUSINESS SEGMENTS
Allcity operates in three business segments--automobile lines, commercial
lines and miscellaneous and personal lines. Results by business segment
for each of the three years ended December 31, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 Premiums Underwriting
Earned Gain (Loss)
<S> <C> <C>
Automobile lines $61,261 $ (9,965)
Commercial lines 29,535 (5,147)
Miscellaneous and personal lines 3,455 560
TOTAL FROM UNDERWRITING $94,251 (14,552)
Net investment income, net securities losses,
other income and interest on surplus note 15,345
INCOME BEFORE FEDERAL INCOME TAXES $ 793
<CAPTION>
1994 Premiums Underwriting
Earned Gain (Loss)
<S> <C> <C>
Automobile lines $55,826 $(4,876)
Commercial lines 30,387 2,531
Miscellaneous and personal lines 2,831 101
TOTAL FROM UNDERWRITING $89,044 (2,244)
Net investment income, net securities losses,
other income and interest on surplus note 12,768
INCOME BEFORE FEDERAL INCOME TAXES $10,524
<CAPTION>
1993 Premiums Underwriting
Earned Gain (Loss)
<S> <C> <C>
Automobile lines $46,911 $(3,188)
Commercial lines 27,196 208
Miscellaneous and personal lines 2,813 309
TOTAL FROM UNDERWRITING $76,920 (2,671)
Net investment income, net securities gains,
other income and interest on surplus note 13,741
INCOME BEFORE FEDERAL INCOME TAXES $11,070
<FN>
It is not practicable to segregate assets by business segment.
</TABLE>
Five general agents, one of which is an Empire subsidiary, produced
approximately 21%, 23% and 26% of Allcity's premiums for the years ended
December 31, 1995, 1994 and 1993, respectively. All of Allcity's business
is conducted in New York State.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's only material financial instruments are investments for
which the fair values are disclosed in Note 4, and the surplus note and
short-term investments, for which the carrying amount approximates fair
value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY
NOTE 14 -- LITIGATION
The Company is party to legal proceedings that are considered to be either
ordinary, routine litigation or incidental to its business. Based on
discussion with Counsel, the Company does not believe that such litigation
will have a material effect on its financial position or results of
operations.
NOTE 15 -- RELATED PARTIES
See Notes 1, 3, 8, 9 and 10 regarding Allcity's relationships with the
Group and Leucadia.
NOTE 16--SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
The following is a summary of unaudited quarterly results of operations
for 1995, 1994 and 1993 (in thousands of dollars, except per share
amounts):
<CAPTION>
1995
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total revenues $28,273 $30,091 $29,852 $29,676
Net income 698 590 299 (1,024)
Net income per share 0.10 0.08 0.04 (0.14)
<CAPTION>
1994
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total revenues $25,065 $24,843 $27,635 $29,743
Net income 1,423 1,147 2,057 2,274
Net income per share 0.20 0.16 0.29 0.32
<CAPTION>
1993
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total revenues $24,016 $23,500 $23,335 $23,781
Net income 7,168* 2,199 2,257 1,769
Net income per share 1.02* 0.31 0.32 0.25
<FN>
*Includes cumulative effect of changes in accounting principles, see Note
2, herein, for further information.
</TABLE>
Actuarial studies conducted during the fourth quarter 1995 and in early
1996 indicated a need for additional reserves. Accordingly, in the fourth
quarter 1995, the Company raised reserves to indicated levels producing a
loss for the quarter.
<PAGE>
<TABLE>
ALLCITY INSURANCE COMPANY
SCHEDULE VI - SUPPLEMENTAL INSURANCE INFORMATION
CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS
(Thousands of dollars)
<CAPTION>
______________________________________________________________________________
COL. A_________ COL. B________COL. C_______COL. D*______COL. E______COL. F____
Reserves
for Unpaid
Deferred Claims Discount
Policy and Claim if any
Acquisition Adjustment Deducted in Unearned Earned
Segment Costs Expenses Column C(a) Premiums Premium
Year Ended 12/31/95:
<S> <C> <C> <C> <C> <C>
Automobile lines $5,057 $199,550 $ 74,194 $ 61,261
Commercial lines 3,042 195,098 $ 75 46,402 29,535
Miscellaneous and
personal lines 479 5,231 ___ 5,346 3,455
TOTAL $8,578 $399,879 $ 75 $125,942 $ 94,251
<CAPTION>
Year Ended 12/31/94:
<S> <C> <C> <C> <C> <C>
Automobile lines $5,044 $165,348 $ 70,234 $55,826
Commercial lines 3,170 170,537 $ 83 48,681 30,387
Miscellaneous and
personal lines 355 5,714 ___ 4,271 2,831
TOTAL $8,569 $341,599 $ 83 $123,186 $89,044
<CAPTION>
Year Ended 12/31/93:
<S> <C> <C> <C> <C> <C>
Automobile lines $4,327 $128,029 $ 54,748 $46,911
Commercial lines 3,070 158,174 $ 81 45,893 27,196
Miscellaneous and
personal lines 340 4,630 ___ 4,084 2,813
TOTAL $7,737 $290,833 $ 81 $104,725 $76,920
<FN>
(a) Liabilities for losses for certain long-term disability payments under
workers' compensation insurance are discounted at a maximum of 6%. The
liabilities discounted are deemed insignificant and do not have a material
effect on reported income.
<FN>
(b) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if different
methods were applied. Other Operating Expenses are reflected net of Service
Fee Income.
<FN>
* Information required by Schedule III - Supplementary Insurance Information has
been incorporated within this schedule.
<CAPTION>
___COL. G_________COL. H_______________COL. I_______COL. J___ COL. K__ COL. L*__
Claims and Claim
Adjustment Expenses Amortization Paid
Incurred related to of Deferred Claims
and Clm
Net (1) (2) Policy Other Claims
Investment Current Prior Acquisition Operating Premiums Adjust
Income(b) Year Years Costs Expenses(b) Written Exp
<C> <C> <C> <C> <C> <C> <C>
$8,875 $56,931 $13,656 $11,016 $(3,045) $62,485 $57,891
6,137 21,399 (3,183) 6,530 2,589 28,821 10,174
346 1,731 (207) 803 583 4,029 1,467
$15,358 $80,061 $10,266 $18,349 $ 127 $95,335 $69,532
$ 7,371 $50,742 $ (216) $10,131 $ 33 $60,216 $37,269
5,526 21,198 (2,581) 5,891 3,368 30,334 16,428
290 1,850 (137) 670 339 2,986 1,351
$13,187 $73,790 $(2,934) $16,692 $3,740 $93,536 $55,048
$ 6,586 $38,861 $ 1,929 $ 8,994 $ 315 $47,624 $34,631
5,383 20,828 (2,089) 5,522 2,727 28,597 15,636
296 1,619 (36) 706 215 2,738 1,470
$12,265 $61,308 $ (196) $15,222 $3,257 $78,959 $51,737
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 261,473
<DEBT-CARRYING-VALUE> 273,548
<DEBT-MARKET-VALUE> 273,573
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 273,548
<CASH> 3,272
<RECOVER-REINSURE> 336,900
<DEFERRED-ACQUISITION> 8,578
<TOTAL-ASSETS> 660,820
<POLICY-LOSSES> 399,879
<UNEARNED-PREMIUMS> 125,942
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 7,079
<OTHER-SE> 68,857
<TOTAL-LIABILITY-AND-EQUITY> 660,820
94,251
<INVESTMENT-INCOME> 15,358
<INVESTMENT-GAINS> (205)
<OTHER-INCOME> 8,488
<BENEFITS> 90,327
<UNDERWRITING-AMORTIZATION> 18,349
<UNDERWRITING-OTHER> 7,810
<INCOME-PRETAX> 793
<INCOME-TAX> 230
<INCOME-CONTINUING> 563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
<RESERVE-OPEN> 121,923
<PROVISION-CURRENT> 80,061
<PROVISION-PRIOR> 10,266
<PAYMENTS-CURRENT> 23,743
<PAYMENTS-PRIOR> 45,789
<RESERVE-CLOSE> 142,718
<CUMULATIVE-DEFICIENCY> (10,266)
</TABLE>
